Description

DaVita is stupid cheap again! I originally posted this idea to the VIC board on 10/28/01 at $18.00/share. Since my post, the company has repurchased over 30% of its common stock, improved its cash flow, and is poised for continued growth.

Why is the stock down 10% today? It is largely due to the company posting only 2.3% same-store growth in the quarter. While this is a deceleration from its historical growth rate, we continue to believe that there is significant unit growth in the industry and that DaVita will continue to capitalize on this over the long run. The company reiterated its guidance for EBITDA of $380-400mm in 12/03 yr.

Free Cash Flow Calculation: EBITDA $390mm, minority interest $10mm, maintence capex $55mm, cash interest expense $70mm, working investment requirements $0, and cash taxes of $90mm. So, the real free cash flow of the company is approximately $165mm.

Total Debt $1,319mm ($850mm bank/other secured, $125mm of 5 5/8% cvt sub nts cvt at $25.62/sh, and $345mm cvt sub nts $32.81), contingent liabilities (legal) that we handicap at $100mm (NPV), $96mm in cash, 60.7mm shrs common and 11.3mm options at $9.36/sh.

So. TEV/(EBITDA - CAPEX) about 8x and real free cash flow to the equity of about 12%. Think stock is worth $30-plus and you have a very good management team that has allcated a lot of captial towards share repurchases in past (over 30% in past year).

I'm trying to get this up on the website ASAP and the conference call is right now. Please refer to my 10/28/01 report for risks and more background info.

Catalyst

continued meaningful share repurchases at a discount to intrinsic value